What Recession? More Strength in Retail Sales Expected (WAG, LTD, TJX, ROST, GPS, LULU, PSMT, BODY, BKE, CHS, TIF)

This week marks the release of the waves of same-store sales for the month of July and at least one research outfit is calling for strength to remain high enough that the U.S. will have seen twenty-three months of consecutive comparable sales growth.  Retail Metrics is calling for a broad 4.7% gain in same-store sales for July. The top performing sectors are expected to be discounters, teen apparel, Drugstore, and Wal-Mart related.

Drug store forecasts are down 20 basis-points to 2.7% due to Walgreen Co. (NYSE: WAG).  Retail Metrics sees slightly higher expectations for Limited Brands, Inc. (NYSE: LTD), The TJX Companies, Inc. (NYSE: TJX), and even for Ross Stores Inc. (NASDAQ: ROST).  Gap Inc. (NYSE: GPS) comparable projections moved lower.  Expectations for Hot Topic moved up helping the teen group tick higher.

Retail Metrics did highlight some of the extreme gains expected, in order, as follows: Lululemon Athletica Inc. (NASDAQ: LULU) at +16.5%, PriceSmart Inc. (NASDAQ: PSMT) at +16.0%, Body Central Corp. (NASDAQ: BODY) at +11.8%, Buckle Inc. (NYSE: BKE) at 11.0%, Chico’s FAS Inc. (NYSE: CHS) at +10.4%, and Tiffany & Co. (NYSE: TIF) at +10.2%.  These expected gains are not helping many of these stocks on Tuesday, but double-digit same-store sales growth is likely going to be more than impressive in this environment.  We noted a drop expected in Gap Inc. (NYSE: GPS) and that is now expected to come in at -0.8% in same-store sales growth.

What is driving the gains despite a slowing economy? Traffic levels at stores have remained solid, higher-end retailers are faring better, 4th of July weekend was a good start for the month, hot weather favored mall traffic, gas prices are down, and more.  Higher unemployment, weaker consumer confidence, apparel price hikes, and weaker housing data are all potential drags per the Retail Metrics data.

Many retail same-store sales do sometimes come out much different than expected and the reasons can literally be from a discrepancy of one day’s reporting.  It is good to see that growth is still being seen somewhere, and more important is that the growth is expected to remain in place despite weak data being seen on most other fronts.

As a reminder, these figures will set the tone for the retail earnings reports that will kick off in the next two weeks as retailers have a one-month lag compared to most other companies in reporting earnings.

JON C. OGG